Whose interest ‘cousin’ directors serve at private banks

The rules of appointing independent directors in the bank were introduced to protect the interest of the depositors and all banks have appointed independent chairman as per this rule.

However, the bankers themselves are calling them ‘the cousins’ (relatives). It means that they (directors) are close to the owners. And in most of the cases they are serving the interest of the owners.

As a result, questions have been raised regarding the role of the independent bank directors. Despite having an independent director, several banks disbursed loans to several companies which exist only on papers.

Now, these banks are facing a liquidity crisis. Therefore, instead of being relieved after the appointment of independent directors, the depositors have become more anxious. The entire banking sector has been affected by this. Over all, the discussion on who are being appointed as the independent directors of the banks has started again.

The discussion regarding the independent bank directors started following a remark of the managing director of Eastern Bank Ali Reza Iftekhar. During a session at the Bangladesh Business Summit he said, “There is a lack of good governance in banks and its directorial bodies in the country. Although the responsibilities of the board directors and managers are fixed, many are not abiding by it. Although the loans are being sanctioned as per the rule, it’s getting defaulted later.

At that point, former Bangladesh Bank Governor and the moderator of the programme Atiur Rahman asked whether recruitment of further more independent directors could be a solution to this problem or not.

In response, Ali Reza Iftekhar said, “It could be a solution. However, the directors need to be independent in the true sense in that case. It would not work if cousins or brothers of owners get appointed as the independent directors of banks.”

In a speech titled ‘Ethics in Banking’ at the Bangladesh Institute of Bank Management (BIBM) auditorium on 11 March, chairman of board of directors of the Grameen Bank, AKM Saiful Majid, said, “The environment of the financial sector has been greatly affected by the unhealthy corporate culture in the country over the last four decades. The greed of the bankers led to loan scams in the Basic Bank, Padma Bank, Islami Bank and in the Sonali Bank, which has further intensified the lack of confidence among the depositors and common people.

Notably, all these four banks had independent directors. Although the owners did not come to limelight, they took illegal benefits as usual.”

The directors, who are also shareholders, always serve in their own interests. Due to this reason, the Bangladesh Securities Exchange Commission (BSEC) introduced a new rule of appointing independent directors in the banks to ensure service in the interest of the depositors in 2006.

In 2018, the BSEC issued the Corporate Governance Code in 2018. It includes the job qualifications of the independent banks directors and clarifies who could be appointed as the directors.

It states, “Top level executive includes managing director (MD) or chief executive officer (CEO), additional or deputy managing director (AMD or DMD), chief operating officer (COO), chief financial officer (CFO), company secretary (CS), head of internal audit and compliance (HIAC), head of administration and human resources or equivalent positions and same level or ranked or salaried officials of the company and government officials above fifth grade can be appointed as the independent director of a bank. Relatives or family members of people who have shares in the concerned bank cannot be appointed as the independent director.”

The Bank Company Act says, “An independent director means a person who is independent from the management and shareholders and will give opinion only in the interest of the bank. The independent director must not have any real or apparent interest in the past, present or future with the bank or any person associated with the bank.”

It is mandatory for the banks listed in the share market to appoint an independent director. There are a total of 34 enlisted banks in the share market. However, some 39 private and state-owned banks have appointed independent directors.

According to the memorandum of the banks’ association, each bank has one to five independent directors. In all, there are 90 independent directors in the banking sector at the moment. There are five independent directors in the BRAC bank and the city bank has one independent director.

Analysing the list of recruitment of independent directors of banks, it has been found that people from different professions and classes, including teachers, former bureaucrats and bankers, accountants, former officials of the Bangladesh Bank and lawyers have been appointed as independent directors. Due to the law, there are no relatives of the bank owners in the list of independent directors. However, the board of directors of a few banks has appointed people from relevant professions who are loyal to them. Besides, some of the directors were appointed from other companies of the owners. There are also reports of independent directors being terminated from the job as soon as the ownership of the bank changed.

The National Bank came into limelight in recent times due to irregularities and whimsical activities of the directors. Naimuzzaman Bhuiyan, joint editor of English news outlet Bangladesh Post, is the independent director of the National Bank. The Sikder Group owns both National Bank and Bangladesh Post.

Fashiul Alam, dean of the business studies department at the Port City University in Chattogram and professor Mohammed Saleh Zahur of the finance department of the University of Chattogram are the independent directors of the Islami Bank, which came into discussion due to irregularities in recent times. They got the appointment after a Chattogram-based business group took the ownership of the bank. Since then, the bank has been mired in irregularities.

Former MD of Janata Bank Abdus Salam is now the independent director of Union Bank, which also created a stir across the country in recent times. After retiring from Janata Bank, he joined the First Security Islami Bank as a consultant. Later, he was appointed the advisor of the Global Islami Bank. Following that, the Union Bank appointed him as the independent director. All these three banks are owned by S Alam Group in Chattogram. Professor Nizamul Haque of the Institute of Nutrition and Food Science at the Dhaka University and banker Hasan Iqbal are the independent directors of the Global Islami Bank. Hasan Iqbal was the former deputy managing director of the Union Bank.

After the change in the ownership, the Social Islami Bank appointed AJM Shafiul Alam Bhuiyan, professor at the television, film and photography department and professor Mohammed Mizanur Rahman of the applied chemistry department of Dhaka University as its independent directors. There were reports of irregularities in the bank after their appointment.

The independent directors of the United Commercial Bank are – Iftekhar Uddin Chowdhury, former vice-chancellor of the Chittagong University, former secretary Aparup Chowdhury and former banker Touhid Shipar Rafiquzzaman. Although the bank was owned by two big business groups, it has always been under the control of the family of late Awami League leader Akhtaruzzaman Chowdhury.

Some of the banks are trying to improve their financial condition by appointing professional and competent persons in the board of directors. For instance, Towfiq Ahmed, former director general of the Bangladesh Institute of Bank Management, has been appointed as the independent director of the Easter Bank.

The BRAC bank has several independent directors, including economist Zahid Hossain, Mustapha K Mujeri and former banker Faruq Moinuddin and former Asian Development Bank official Farzana Ahmed.

The independent directors of Mutual Trust Bank are Nasreen Sattar, former chief executive officer of Standard Chartered Bank, Afghanistan, and Faruq Ahmad Siddiqi, former chairman of Bangladesh Securities and Exchange Commission (BSEC) while banker Anisuddin Ahmed Khan, also known as Anis A Khan, is the independent director of Trust Bank. Shahjalal Islami Bank has two independent directors -- KAM Majedur Rahman and Nasir Uddin Ahmed and they both were former managing director of the bank. Lawyer Shahdeen Malik and Mohammad Naushad Ali Chowdhury, former executive director of Bangladesh Bank, are independent director of Pubali Bank while professor MA Taslim, and former government officials Ahbab Ahmad and Feroz Ahmed were the independent directors of Dhaka Bank.

Several other banks also appointed independent directors who play a role on the board and these banks are marred with less irregularity.

AJM Shafiul Alam Bhuiyan, professor and Department of Television, Film and Photography department, University of Dhaka, has been an independent director of Social Islami Bank for four years.

Replying to a query on his role in the board and whether he has raised any objection on the decision of bank’s board so far, AJM Shafiul Alam Bhuiyan said, “I protect the interest of the depositors as an independent director. No one was given the advantage during my time, so no opportunity to raise an objection came up. There are 60-70 minutes in every meeting and I tried to review these files before attending the board meeting and the meeting minutes never seemed to have caused any irregularity.”

So, are the irregularities that the Bangladesh Bank found wrong? In reply, AJM Shafiul Alam Bhuiyan said, “Bank shareholders and management can say better on this. I heard loans marred with irregularity are being recovered and I am trying to be careful at the board meeting as much as I can.”

Mohammad Saleh Jahur, professor of finance department, University of Chittagong, is an independent director of the Islami Bank. He flies to Dhaka from Chattogram back and forth at the expense borne by the bank to join the board meeting.

Replying to a query on his role in the bank’s board as an independent director, he told Prothom Alo, “I didn't allow any irregularity after I had become the director of the bank in 2019. When I doubted anything, I raised objection and the bank fixed it. Our chairman is a strong person and it is not possible that any irregularity will happen bypassing him.”

Replying to another query on the chairman is a representative of a business group and you are an independent director; so, why you are siding with the chairman, and whether the discrepancy found during central bank’s inspection are wrong, Mohammad Saleh Jahur said, “Audit will raise objection and the bank is replying to it. This will be fixed. We all including the chairman are trying to uphold the interest of the bank.”

Bank authorities decide who will be appointed as independent director and propose the name of their likings as independent director after consulting with other directors. The BSEC and Bangladesh Bank are finally approved it. As a result, people who will point out irregularities happening at the bank are being made bank director. People concerned from banking sector said such practice must change and honorarium of independent directors should be raised considering the volume of their work.

Speaking to Prothom Alo, former Bangladesh Bank governor Salehuddin Ahmed said time has come for independent directors of banks to play an effective role on bank operations and professionals and men with high personality who can work bravely and have no greed must be appointed as independent director. Regulators can appoint these persons instead of the persons proposed by banks.

Besides, the central bank instructs the banks to give maximum importance on the opinion of independent director. If independent directors play their role properly, these irregularities would not happen in banks. Time has come to think about who will be independent directors of bank and what role they will play. Besides, honorarium of these posts must be raised to make their role more effective, he added.

*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Ashis Basu and Hasanul Banna